Kohl’s unveils new partnership with Amazon
Online retailer given prime space in stores
CHICAGO – Walk in the first-floor entrance of the Kohl’s store in the Bucktown neighborhood northwest of downtown and there’s virtually no chance you’ll miss the new Amazon “smart home” shop and its array of Star Trek-worthy digital gear.
It’s all immediately inside the door and prominently marked with the now-familiar Amazon logo — a store-within-a-store that is the first thing anyone popping in to pick up a Sonoma tank top, Under Armour hoodie or Gaiam yoga pants will see.
Which suggests just how important the, for now, smallscale alliance with Amazon is to Kohl’s Corp. In a rapidly evolving environment that has traditional retailers scrambling to hold their ground, let alone grow, why not take a chance on a deal that puts an arch rival — perhaps
the arch rival — at your front door?
“The whole retail industry is going through a massive transformation,” Kohl’s soonto-be CEO Michelle Gass said Tuesday as she showed off the Amazon shop with its Echoes, Fires and Kindles. “Those who ultimately are going to survive and thrive through this period are going to think differently.”
Give Kohl’s credit for that. By providing Amazon with prime real estate, the Menomonee Falls-based company is offering the online retail giant a physical foothold to promote its increasingly popular smart-home devices that, in turn, conceivably may become a tool for Amazon to sell the massive array of other stuff its customers used to buy in stores like Kohl’s.
But that is a risk Kohl’s has weighed and is willing to take because it sees a bigger upside — the potential to increase its lagging foot traffic and to set itself apart from brick-and-mortar rivals.
“In terms of us staying relevant and interesting, surprising, engaging, it’s doing things like this, so that in the end we can take market share and win over (the) long term,” said Gass, currently the retailer’s chief merchandising and customer officer.
Amazon smart home shops will debut Wednesday in 10 Kohl’s stores in Chicago and Los Angeles. The shops, each about 1,000 square feet, are
stocked with Amazon devices, most importantly the Echo line of voice-activated virtual assistants that let owners command the functions of their homes like Captain Kirk on the bridge of the Enterprise.
The Echo is by far the market leader in its field, with 15 million devices installed in the U.S., Consumer Intelligence Research Partners recently estimated. Google Home is a distant runner-up with about 5 million units, CIRP estimates.
Consumers can experiment with the Echo, as well as with the Kindle readers and Fire tablets, and see first-hand what they can do — an important tool for Amazon. The company, which recently bought Whole Foods Markets, increasingly sees a brick-andmortar presence as a valuable addition to its largely online strategy.
Amazon employees will staff the shops. Sales will be rung up not at the Kohl’s registers but by Amazon. Prices are the same as on Amazon.com. Gass declined to discuss financial terms of the arrangement.
Beyond the smarthome shops, the 10 Kohl’s stores also will begin accepting and processing returns of other Amazon merchandise on Wednesday, with another 72 stores in the Chicago and Los Angeles areas set to begin taking returns in the near future.
The returns agreement with Amazon affects less than 10% of Kohl’s roughly 1,150 stores nationwide, and the smart-home shops less than 1%. But some analysts have speculated that this is only the beginning of a deeper relationship.
Gass herself may have hinted as much Tuesday, while talking about how Kohl’s, which already gathers huge amounts of data on its customers, hopes to learn still more by setting up the Amazon shops.
“That’s why we’re starting in 10 stores,” she said, “to have a bit of a laboratory to understand how customers engage with this kind of experience inside of Kohl’s.”
Asked whether her choice of the word “starting” signaled planned expansion of the concept, Gass laughed and said, “You know, we’ve got 10. I’ll leave it there.”
Morningstar Inc. analyst Bridget Weishaar is among those who think the Amazon presence in Kohl’s may be taken into more stores. And she likes the overall deal for Kohl’s.
“I think it’s smart of them,” she said. “In fact, I even upped my numbers on it. The problem that all of these retailers face is drawing foot traffic. That is their biggest problem. Yes, you can cut costs to kind of boost your income, but there’s going to come a point where there are no more costs to cut. At some point you’ve got to figure out how to get customers into those stores, or shutter your stores.”
The question, Weishaar said, is whether the shoppers who come for Amazon will stay for Sonoma.
“So if you have a nontarget-market customer coming in, how much are they going to buy?” Weishaar asked. “I think that’s the big unknown.”
In any case, it’s a new direction for Kohl’s, which may be poised for more changes. Next May, Kevin Mansell, a 35-year Kohl’s veteran who has been CEO since 2008, will retire. Gass, who came to Kohl’s just four years ago from Starbucks, will replace him.
Meanwhile, Chief Operating Officer Sona Chawla, a former Walgreens executive who joined Kohl’s in November 2015, is to become president. That would give Kohl’s not only two relative newcomers in the top spots, but two women as well — a rarity among large retailers.
And Gass made clear that other new ideas are percolating in Menomonee Falls.
“Always,” she said. “Expect no less. A lot of fun things going on.”